Fable developer Lionhead Studios' ambitious Milo project for Xbox 360's Kinect add-on may have finally been put to bed. Sources claiming to have knowledge of the tech demo's development tell Kotaku that Project Milo has been effectively shut down.

That same source indicates that the technology that powered Project Milo—which has also been referred to as Milo & Kate—will live on in another form, a Kinect-enabled game based on the Fable franchise. Lionhead had plans to incorporate Kinect controls into the upcoming Fable III, but scrapped those plans for the game's launch.

The rumored cancellation of Project Milo, first shown at E3 2009 by Lionhead's Peter Molyneux, has impacted the studio's headcount to the tune of more than a dozen contractors, sources say. Those supposed lay-offs may be related to development on Fable III winding down, however.

Earlier this year, rumors of the project's demise swirled when Microsoft's Aaron Greenberg claimed the Project Milo "technology demo" was "not a product we plan to bring to market." Greenberg later clarified that the Kinect title was simply not due for release "this holiday."

Microsoft, when reached for comment, said "We have no news to share on the Milo front and do not comment on speculation or rumor." Other sources closer to Lionhead Studios chose not to comment on the matter.